In the media and movies, actuaries are often stereotyped as boring, introverted, and geeky. Perhaps its their expertise in data analysis and frequent work with numbers thatgives that impression. But personality aside, actuaries are the vital backbone of insurance organizations.
Most actuarial teams work primarily in spreadsheet environments, which, while still better than paper sheets, can lead to inefficiency. Spreadsheets typically generate significant duplication of effort when analyses need to be updated. Consequently, actuaries spend too much time in repetitive tasks to update analyses.
Rethinking how actuaries work
Actuaries understand the importance of using data to drive decision making. They do not predict results out of thin air but are trained to analyze data using sophisticated and technical methods and tools. Combine this with a deep knowledge of insurance data, products, and operations, and you get an understanding of why actuaries are invaluable to insurance organizations.
They could be contributing much more value if freed of routine, repetitive tasks, yet many actuarial teams are asked to follow the same processes as before. Perhaps the stereotype is reflective of the type of work actuaries are burdened with. Running reports and preparing data comes with significant duplication of effort in most actuarial processes. For example, pricing and reserving departments pick their own loss development factors for the same set of loss development triangles (loss data organized by age of claim). They have limited involvement in other areas such as underwriting, claims, marketing, and finance though they may have useful insights to contribute.
The way actuaries work drives how they think about it
Actuaries are working at a fraction of their potential and spend most of their time working on tasks they do not enjoy. We believe there is a better way for actuaries to work.
To get out of this seemingly endless loop of repetitive tasks, we need to transition to a software development environment which enables actuarial teams to gain lasting efficiencies and economies of scale. Leading organizations in all industries have adopted software development approaches to run their businesses, but not many actuarial teams have adopted them.
How software development practices can transform actuarial work
A software development approach refers to the structured process used in developing software with the goals to effectively organize the workflow, reduce time and costs, formalize communications, quickly identify and resolve problems, and ultimately to produce a quality product. Over the years, various software development methodologies have been introduced to capitalize on the available technologies and resources. They have also been applied successfully to projects that are not software development. We believe actuarial teams can successfully follow these approaches.
Using software development practices allows actuaries to produce modular and reusable work products which are scalable and boost efficiency over time. We can eliminate those mega spreadsheets which are hard to reuse for the next project.
The advantages of automation and workflow
Just like how armies of software developers can work efficiently to build software, these practices include a communications structure which increases the team’s ability to collaborate. Collaboration has numerous benefits; an immediate gain that can be reaped is the elimination of work duplication, leading to more time savings. Debugging and testing are integral to software development to produce viable products. Today’s software development processes have built-in automated error verification which can be replicated in the actuaries’ work products.
On top of all that, the approach creates a workflow, leading to better structuring of data and processes, which then enables automation to be implemented throughout whole processes rather than in a piecemeal fashion. With automation, comes speed. Actuarial teams will be able to analyze more in less time, with fewer errors and with greater ease.
Furthermore, the software development approaches open the path to the use of cutting-edge technology like machine learning (like PyTorch), computation optimization (for example, Numba, Dask), and user interface (such as Dash, Django) tools. The flexibility keeps work products reusable, scalable, expandable, and relevant for a long time.
The impact on actuarial careers and image
There is a strong case for actuarial teams in insurance organizations to leverage software development practices to gain efficiency and economies of scale.
What’s in it for actuaries to adopt software development practices? We think they make work more exciting and fulfilling. While most actuaries love their jobs, they have no desire to update spreadsheets their whole career. These approaches may even change the actuary stereotype to one that is innovative, intriguing, and enchanting.